How to avoid repaying the 2008 first-time homebuyer credit

If you purchased a home in 2008 and took a first-time homebuyer credit on your 2008 tax return, you know that this credit is really more like a loan – you have to pay it back in $500 increments over 15 years. You likely also know that if you sell your home before the 15 years is up, that you have to repay the loan on your tax return in the year of the sale. But did you know that if you sell your home for a loss (as adjusted by closing costs and the unpaid amount of the loan) that you don’t have to repay the loan? If you are selling your home for a loss or near breakeven, then this could be a ~$5,000 windfall for you. If you are contemplating selling your home in 2015, this windfall could help make selling for a loss a little easier to bear.